On Wednesday, Wells Fargo updated its financial outlook for Meta Platforms Inc. (NASDAQ: NASDAQ:META), increasing the price target to $652 from the previous $647 while maintaining an Overweight rating on the stock. The firm anticipates another strong quarter for the company, with expectations for continued robust growth in constant currency (cc) advertising revenue, projecting a 21% year-over-year increase based on positive market checks.
The analyst from Wells Fargo commented on the potential for Meta's stock, noting its perception as a leader in artificial intelligence (AI). However, it was also mentioned that the stock might stay within a certain range until the company provides its operating expense (OpEx) and capital expenditure (CapEx) guidance during the fourth-quarter 2024 earnings call. Despite this, revenue forecasts for the third quarter are expected to be close to the higher end of the company's guidance, ranging from $38.5 billion to $41 billion, with Wells Fargo estimating $40.7 billion.
The report detailed adjustments to revenue growth estimates, slightly increasing them for the third and fourth quarters of 2024 and the full year 2025. These adjustments are primarily due to foreign exchange (FX) considerations, with an estimated 160 basis points FX headwind in the third quarter, which is slightly less than the company's guidance of a 200 basis points impact.
Additionally, Wells Fargo has revised its total operating expense forecasts for fiscal years 2024 and 2025 to $97.2 billion and $110.5 billion, respectively. This represents a slight increase from the previous forecasts of $97 billion for 2024 and $109.6 billion for 2025, attributed to the weakening of the U.S. dollar. The firm's expectations for Meta's earnings per share (EPS) in 2025 remain above consensus, standing at over $27.
In other recent news, Meta Platforms Inc has made significant strides against deceptive advertisements on its platforms, removing around 8,000 fraudulent ads in collaboration with Australian banks. This move comes amidst increasing scam reports in Australia and pending anti-scam legislation. Meta is also contending with lawsuits in Australia and California related to the spread of scam ads.
Pivotal Research recently gave Meta a Buy rating, citing the company's expansive user base and successful product development track record. The research firm anticipates robust revenue growth for Meta, supported by cost efficiencies and the reduction in Reality Labs' losses. Other firms, including Monness, Crespi, Hardt, and Rosenblatt Securities, also maintain a positive outlook on Meta's stock, highlighting its potential in AI and metaverse innovations.
However, Meta has faced regulatory challenges, evidenced by a €91 million fine imposed by Ireland's Data Protection Commission for a security lapse involving user password storage. This adds to the company's growing tally of penalties under the EU's stringent General Data Protection Regulation.
Oppenheimer has maintained its Outperform rating on Meta, following the company's annual "Meta Connect" developer event, which showcased technological advances including a lower-cost mixed-reality headset and updates to its AI capabilities.
InvestingPro Insights
Meta Platforms Inc. (NASDAQ: META) continues to demonstrate strong financial performance, aligning with Wells Fargo's optimistic outlook. According to InvestingPro data, Meta's revenue growth remains robust, with a 24.28% increase over the last twelve months as of Q2 2024. This growth trajectory supports Wells Fargo's projection of continued strength in advertising revenue.
The company's profitability is particularly noteworthy, with an impressive gross profit margin of 81.49% and an operating income margin of 41.21% for the same period. These figures underscore Meta's efficiency in converting revenue into profit, which is crucial for sustaining its AI leadership and future investments.
InvestingPro Tips highlight that Meta "holds more cash than debt on its balance sheet" and has "liquid assets exceed short term obligations." These factors provide the company with financial flexibility to pursue AI initiatives and manage potential fluctuations in operating expenses, addressing Wells Fargo's observations about OpEx and CapEx guidance.
Moreover, Meta is "trading at a low P/E ratio relative to near-term earnings growth," with a current P/E ratio of 28.7. This valuation metric, combined with the analyst's increased price target, suggests potential upside for investors aligned with Wells Fargo's Overweight rating.
For readers seeking a deeper understanding of Meta's financial position, InvestingPro offers 13 additional tips, providing a comprehensive view of the company's market standing and growth potential.
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